Forget Valeant, buy these health stocks instead

An employee uses a microscope at the Medtronic assembly plant in Tijuana, Mexico.
David Maung | Bloomberg | Getty Images
An employee uses a microscope at the Medtronic assembly plant in Tijuana, Mexico.

Shares of Valeant Pharmaceuticals continued to tank Thursday afternoon on reports creditors could demand new terms that could further pressure the company's business model.

Valeant's investors, including hedge fund billionaire Bill Ackman, have been dumping the stock since in recent months amid questions about the company's accounting. Ackman's Pershing Square entities, which owned 30,711,122 Valeant shares, recently suffered a single-day paper loss of $1.09 billion dollars.

Les Funtleyder, a health care portfolio manager at E Squared Asset Management, told CNBC's "Power Lunch" on Thursday he is avoiding Valeant "like the plague."

"Fortunately, I never held a single share in Valeant. Last year, when the company raised drug prices and scrapped R&D, that was a big red flag for me," said Funtleyder. "Without research, you don't get new drugs. Period. Why even be in the pharmaceutical business at that point? You might as well be selling sneakers."

Funtleyder calls Valeant's business model "broken" with little hope of recovery.

"The only way to revive the company is with new management."

Given such a bearish stance on Valeant, where is Funtleyder putting money to work in the health care sector?

"I have long-term positions in the medical technology and managed care sectors of health care, two good places to be in 2016,"

His five favorite stock picks right now are Stryker, Boston Scientific, Medtronic, United Health Care and Penumbra.

Funtleyder calls Penumbra the most interesting trade of all, thanks to an innovative device for stroke victims that suctions out clogged arteries in the brain.

"Penumbra's device is literally a stroke vacuum cleaner, " he said. "It's very cool."